President Biden has nominated Sarah Bloom Raskin as the new vice chair for supervision at the Federal Reserve. Raskin has previously advocated for concerted action to address climate-related financial risks.
Biden sent the nomination to the Senate on Thursday, the FT reports (paywall). He has also tapped Lisa Cook, a professor of economics and international relations at Michigan State University, and Philip Jefferson, a professor of economics at Davidson College, to fill the two remaining vacancies on the Fed’s board of governors.
If confirmed by the Senate, Raskin will be responsible for developing policy recommendations on the oversight and regulation of US banks and other financial institutions. She will likely join chair Jerome Powell and recently-appointed vice chair Lael Brainard on the Fed’s seven-member board. Both are currently undergoing their own confirmation process.
Under Powell’s chairmanship, the Fed has frustrated climate advocates with the relative slowness and narrowness of its climate action. However, Raskin has warned of the potential consequences of delay. She recently contrasted US regulators’ record unfavourably with their counterparts in the UK and eurozone.
“Institutions like the European Central Bank, the Bank of England, the Bank of Japan, and the Bank for International Settlements are actively working to repurpose instruments like stress tests, living wills, and risk-based capital standards – all within their existing mandates,” she wrote in an article for Project Syndicate.
“They are also pursuing new alliances with local regulators to bridge the regulatory gaps between the financial sector and the shadow banking system.”
The policies adopted by other central banks, which include recalibrating capital rules to more accurately reflect climate risks, and applying tougher oversight of the build-up of climate risks in the shadow banking sector, are among the steps that climate groups have called on US regulators to consider.
Raskin was previously deputy Treasury secretary and sat on the Fed’s board of governors during the Obama administration. She currently teaches at Duke University and contributed to a 2020 report by the Ceres think tank, Addressing Climate as a Systemic Risk, which was billed as a call to action for US financial regulators. Many of the recommendations in the Ceres paper were echoed in October’s report on climate risk published by the Financial Services Oversight Council (FSOC).
After a long period of inaction, the Fed took some tentative steps towards tackling climate risk last year. Powell was among the signatories of the FSOC report, and the Fed joined the Network for Greening the Financial System in December 2020. Powell has confirmed that the Fed is developing supervisory guidance on climate risks, and is expected to conduct a formal scenario analysis by next year.
Raskin has hinted at a role for regulation that goes beyond managing narrowly-defined climate risks. In her Project Syndicate article, she posed a series of questions about how financial policy could be deployed in the context of the broader climate transition.
“How might financial policies from diverse agencies be stitched together to produce outcomes that enable firms to hit their net-zero targets? How can financial policy be used to help accelerate a transition that redeploys workers for new jobs, or to assist households that are being asked to change their spending habits? And how can regulatory changes relating to disclosure, access to credit, and pricing of risk support a rapid and just green transition?”
Her nomination will be subject to confirmation by the Senate, and may be met with resistance from a number of Republicans, some of whom have opposed action by the Fed on climate in the past. Senator Pat Toomey said he had “serious concerns” over her nomination, adding that he is worried she would try and stop banks lending to oil and gas companies.
Update, 21 January 2022: this date on which the Federal Reserve joined the NGFS was corrected from August to December 2020.
This page was last updated January 21, 2022
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